IMPORTANT INFORMATION ON CRIME COVERAGE
This broker bulletin stresses the importance of crime insurance to all your accounts and provides advisement on a change in underwriting procedures regarding this specific coverage.
There are three ways to protect the insured against falling victim to various employee or contractor criminal activities:
- Crime Coverage
- Cargo / IM Coverage
- Cyber Coverage
Crime Coverage Policies protect against employee theft and much more. As you know, these policies typically cover several different types of crime to which businesses are vulnerable: employee dishonesty, forgery or alteration, theft of monies and securities, burglary or robbery, and computer fraud. In the most simplistic form, this coverage protects the insured against crimes committed against them by their employees.
Cargo/IM coverage has provisions for the theft of the shippers goods if committed by an employee. This coverage is for the loss or damage caused by the dishonest or criminal act of the employee. There are frequently limitations within the policy that apply to items such as cash, jewelry, and collectibles which are commonly targeted in these scenarios.
Cyber Crime coverage protects the insured from the world of technology that has become a gateway for criminals to steal from our insureds using information, data, and company records.
To protect our customers against these threats, we must understand the risks. Generally losses are broken down into three categories:
- Crime committed by employees
- Crime committed by non-employees
- Crime committed by independent contractors and their employees
Employee Theft – Employee theft depends on the trust an employer places in an employee. Employee theft is the stealing or theft of any employer’s asset without permission. This could include anything from money, supplies, to business opportunities. Employees with greater access to company assets (money, securities, property, and propriety information) require a higher degree of scrutiny prior to hiring. This includes:
- Complete applications
- Background checks
- Drug screening
Controls that aid in minimizing losses include:
- Separation of duties among employees
- Check handling procedures – signature required by two or more authorized persons
- Payment and check thresholds
- Incoming check and deposit procedures
- Payroll procedures
- Inventory Control – records to keep track of all inventory movement cross-checked by few individuals
Non-Employee Theft – An example would be another moving company’s employee delivering goods for you to store. It is impossible to prevent all crime; however, steps can be taken to limit this crime exposure that can reduce losses. Controls that can minimize losses include:
- Security – Locks and key management are essential. Keys should be provided on a limited basis.
- Windows and doors – What are the regulations for the windows and doors during non-business hours to be closed and locked? Is there a regular maintenance “check” on the locked doors and windows? Which type of windows and doors should be considered to detract burglars?
- Security gates and fences – These should be high enough and configured to discourage climbing.
- Alarms and cameras – These are deterrents and will notify the authorities if triggered.
Independent Contractors & Their Employees – Although this is a bit more complicated, the answer to this coverage is to afford a cargo policy that includes the employee theft, such as the one we have available in our risk purchasing group. This Risk Purchasing Group is in place especially for contractors.
Cyber Threat – Computer fraud also poses a significant threat. Our customers should have controls in place as it relates to company-issued devices and computers. Employees can fall victim to stolen property and hacking. Controls in place could include:
- Strong passwords
- Device lock
- Device tracking
In order for our underwriters to better realize the crime exposure for a specific account, we have revised our moving and storage supplemental application to include seven additional questions. These questions are specific to Hiring Practices, Controls, and Audit Procedures. The new version of our moving and storage supplemental application is now located on our website.
On accounts that require a Crime Limit exceeding $150,000, we require a separate supplemental application that must be submitted as part of the package submission. A copy of this new high limit crime supplemental application can be located on our website.
We all know these losses are out there. Consider the following three examples:
- Recently a claim involving our insureds concerned a series of thefts by two former employees working for several moving companies. Police arrested one individual and found stolen jewelry from another job in his possession. He confessed to stealing while working. The investigating officer discovered the former employee had been stealing and using the same pawnshop for a year. After the pawn tickets were lined up with the Bills of Ladings and letters were sent out to the shippers, the former employee was successfully implicated in numerous thefts. This situation could have been prevented had some simple loss prevention measures been in place relating to the employee background check and the handling of high value goods.
- Another situation involved an insured who had an employee issuing checks to a family member in another state. The employee had embezzled over $150,000 before the missing funds were discovered. The checks had been issued quickly and easily over a short period of time. Prevention measures for this loss should have included a check and balance to ensure that the employees handling financial accounts had procedures requiring two or more authorized persons to sign outgoing checks and two or more different persons authorized to process incoming checks and make deposits.
- On yet another occasion several million dollars in computer hard drives were stolen from our insured’s warehouse at night. The thieves cleverly avoided the “state of the art” security system and shipped all of the goods overseas before they could be traced. Loss control and prevention considerations for this loss include analysis of the security system, the method in which the burglars accessed the building, and the breakdown of the system.
Examples abound because the exposure is real. Every account has specific exposure and should be reviewed to make certain limits are adequately covered. Please review this coverage carefully with our customers and reach out to us with any additional questions.
Fraudulent Impersonation – We are pleased to announce we have a new Fraudulent Impersonation coverage available to add to our current Crime Policy offering. Fraudulent Impersonation (Policy Form: CR 0417) provides coverage for loss resulting directly from the insured having, in good faith, transferred money, securities or other property in reliance upon a transfer instruction purportedly issued by an employee or other covered person, or a customer or vendor of the insured, but which transfer instruction proves to have been fraudulently issued by an imposter without the knowledge or consent of the employee or other covered person, customer or vendor.